U.S. stocks are rallying. The rally started yesterday, as the U.S. Federal Reserve announced its intention to retain its policy of record-low interest rates for a “considerable time.”
While the Fed does plan eventually to raise interest rates, in response to economic and labor market factors, the two-day meeting this week of the Federal Open Market Committee ended with a statement that contained new language: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” That means the FOMC will be “patient” concerning the need to raise the overnight lending rate from the current levels.
Read more about Fast Forward 12-18-14
The U.S. stock markets climbed today after taking a three-day breather that followed a new record high set last Friday. Investors relaxed upon learning that November U.S. retail sales reached their highest level in eight months, more than economists had forecast, thanks to the improvements in the labor market and cheaper gasoline and fuel prices.
Moreover, consumer comfort (as measured by the Bloomberg Consumer Comfort index) increased to the highest level since 2007. The dollar climbed today against other currencies, also halting the recent slide. U.S. Treasuries, which had advanced earlier in the week as investors globally moved funds into “safe haven” holdings, declined today. Read more about Stocks in a Better Mood 12-11-14
The big investment story these days has been the price of oil, which declined sharply after Saudi Arabia decreased prices for export to the U.S. Most stocks across the sector have been bruised or even brutalized, but stronger plays are good bets to continue to collect solid income while waiting for the inevitable rebound. The price increases will come in response to global growth and demand from emerging markets like China and India. Please see our special Hotline of Tuesday, “How to Profit from the Oil Trough.” Check your email inbox or the Leeb Income Performance website in case you missed it. Read more about A Look at Oil and A Look Ahead 12-04-14
The sharp fall in oil prices engineered by Saudi Arabia will likely be fairly short-lived, and indeed it should set the stage for the next major rally in oil. While prices could stay low for another six to nine months or perhaps a little longer, odds look good that within the next 12 to 18 months oil prices will rise much closer to their all-time highs from current levels. Moreover, oil’s drop has shortened the time it will take for commodity prices in general, whose correction began in 2011 with Europe’s recession, to bottom. All this has important implications for the short- and longer-term geopolitical and economic outlook and for U.S. investors.
For the U.S., the lower oil prices are a mixed blessing. On one hand, they will put extra cash in U.S. consumers’ pockets; on the other, the country’s most dynamic industry, energy production, will crumble. For investors, we’ll note that since OPEC first flexed its muscle in the early 1970s, U.S. stock markets have never experienced major declines concurrent with a bear market in oil prices.
The two economies that will benefit the most are Europe—at least over the shorter term—and China. Both are major oil importers, and lower oil prices are a free shot in their economic arm, giving consumers extra cash without the government laying out a penny. But China stands out as the biggest winner by far, with the drop in oil a multifold blessing over the shorter and longer terms alike.
It not only hands Chinese consumers a de facto tax cut; it also gives the yuan more freedom to follow its upward trajectory. This further boosts consumer demand while allowing China to import all the military and other technology it craves. Better times in Europe will also help offset the higher yuan as European consumer spending picks up. As a bonus, China gets to buy oil on the cheap Read more about How to Profit from the Trough in Oil 12-02-14
The stock market was reluctant to keep rallying as it processed the latest minutes of the Federal Reserve Open Market Committee, released yesterday. The minutes were somewhat surprising, as the committee members noted their expectation for inflation to “move back to the committee’s 2 percent target over the medium term as resource slack diminished in an environment of well-anchored inflation expectations.” Many Federal Reserve committee members last month urged the body to remain vigilant for signs of declining inflation, however, and the minutes also revealed broad-based debate on whether to retain the committee’s pledge to keep interest rates near zero for a “considerable time.” Read more about News of the Week: Fed and Housing 11-20-14